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Those who prefer that the Fed react to negative supply shocks by tolerating higher rates
of inflation as a means of moderating a recession are called
a. inflation doves
b. inflation hawks
c. monetarists
d. Keynesians
e. hard headed and soft hearted
The employment-to-population ratio in the U.S. is expected to decline as the baby boom
generation retires.
Why does increasing employment not necessarily increase living standards?
a. Productivity always increases as employment increases.
b. Living standards and employment are always positively related.
c. Increasing employment may not be accompanied by higher real wages
d. There is no upper limit to labor force participation.
e. Real wages are not adjusted for inflation.
Which of the following items is most likely to be an inferior good?
a. bus tickets
b. airline tickets
c. housing
d. stereo equipment
e. home computers
In a labor market diagram, the point at which the labor supply curve crosses the labor
demand curve is
a. the point at which all workers are employed at the salary at which they would prefer
to be employed
b. the point at which all jobs are filled at the wage employers prefer to pay
c. the point at which everyone who wants to work is able to find a job
d. a point at which we have excess labor supply, causing unemployment
e. the point at which excess demand for labor drives the wage rate upward
Every time a bank calls in a loan, demand deposits are created.
Suppose you are seeking a real wage increase of 2% and you expect inflation to be 3%.
What nominal wage increase should you seek?
a. 2.0%
b. 3.0%
c. 1.0%
d. 5.0%
e. 1.5%
In the long run, there is a tradeoff between inflation and unemployment.
Which of the following real-world phenomena does the classical model ignore?
a. Frictional unemployment
b. Inflation
c. Real output growth
d. Cyclical unemployment
e. Structural unemployment
Suppose Bob and Tom are writing jokes for a their new TV show. Suppose there are
two types of jokes, political jokes and jokes about celebrities. The number of jokes that
can be produced by each person in each category are listed in Figure 2-12. From this
table you can tell that
Figure 2-12
a. Bob has an absolute advantage in both political and celebrity jokes
b. Tom has an absolute advantage in both political and celebrity jokes
c. Bob has an comparative advantage in both political and celebrity jokes
d. Tom has an comparative advantage in both political and celebrity jokes
e. there are no gains from specialization
In the supply and demand schedules in Figure 3-10, the equilibrium quantity of socks is
a. 15 pairs
b. 10 pairs
c. 13 pairs
d. 6 pairs
e. 1 pair
The aggregate demand curve
a. represents the relationship between prices and quantities of all goods produced in an
economy
b. is derived from equilibrium conditions in the labor and money markets
c. gives the equilibrium level of real GDP corresponding to a given price level
d. is the sum of an economy's individual demand curves
e. plots the interest rate as a function of output
After examining Figure 8-3, it is possible to conclude that
a. people do not save money nor pay taxes in this model
b. firms purchase resources from households and other firms in this model
c. households are the only ones who purchase and firms the only ones who sell in this
model
d. completion of a sale represents a break in the flow of goods and services, and inputs
in this model
e. all households and firms individually receive the same amount of money in this
model
Assume that U.S. agricultural land is used either to raise cattle for beef or to grow
wheat. Figure 2-2 represents the production possibility frontier for beef and wheat.
Between points F and G, the opportunity cost increasing wheat by two bushels equals
Figure 2-2
a. 0.25 million pounds of beef
b. 1.75 million pounds of beef
c. 0.125 pounds of beef
d. 8.0 pounds of beef
e. 0.5 pounds of beef
Suppose you observed that at the same time employment increased, wages fell. Which
of the following is a possible explanation for this observation?
a. An increase in labor demand
b. A decrease in labor demand
c. An increase in labor demand that was outpaced by an increase in labor supply
d. A decrease in labor supply
e. Cannot be determined from the available information.
If the required reserve ratio is 20 percent, banks loan out all excess reserves, people
hold no currency, and the Fed sells $5,000 worth of bonds to banks, what is the ultimate
impact on the money supply?
a. The money supply will increase by $5,000.
b. The money supply will decrease by $5,000.
c. The money supply will increase by $25,000.
d. The money supply will decrease by $25,000.
e. The money supply will not change.
Which of the following describes the purchasing power parity theory of exchange rate
determination?
a. The exchange rate will adjust in the long run until the interest rate is roughly the
same in both countries.
b. The exchange rate will adjust in the long run until real GDP per capita is roughly the
same in both countries.
c. The exchange rate will adjust in the long run until the average price of goods is
roughly the same in both countries.
d. The exchange rate will adjust in the short run until the average price of goods is
roughly the same in both countries.
e. Prices adjust in the short run until the exchange rate is roughly the same in both
countries.
Kara is a construction worker. Because of adverse weather during the winter, she has
been laid off from her job. She is available for work and has even sought work with
other construction companies. Kara is
a. experiencing frictional unemployment
b. experiencing seasonal unemployment
c. experiencing structural unemployment
d. experiencing cyclical unemployment
e. not in the labor force at this time
An increase in government purchases, an increase in the interest rate, and an increase in
consumption all shift the aggregate expenditure line upward.
The Fed responds to money demand shocks by
a. changing the velocity of money
b. changing the money supply
c. following the money creation rules responsible for its success in the past two decades
d. increasing the required reserve ratio
e. changing its definition of the natural rate of unemployment
